Americans have upgraded their outlook on the economy for the first time in five months, following the Trump administration’s agreement to ease tariffs on China, according to the Conference Board’s consumer confidence report released Tuesday. The data shows that consumers are closely tying their economic confidence to the outcome of the trade war, with concerns over personal finances, inflation, and employment prospects easing as tariff tensions between the U.S. and China appeared to cool.
Tariff Deal Boosts Consumer Confidence
Stephanie Guichard, senior economist at the Conference Board, noted that the rebound in consumer confidence was already visible before the May 12 U.S.-China trade deal but gained momentum afterward. “Consumers continued to express concerns about tariffs increasing prices and having negative impacts on the economy, but some also expressed hopes that the announced and future trade deals could support economic activity,” she said. The consumer confidence index rose more than 12 points in May, reflecting improvements across various demographic groups and political affiliations. The largest gains were seen among Republicans.
Optimism About Business, Jobs, and Income
Consumers displayed increased optimism about business conditions, the labor market, and their future income prospects. As a result, fewer consumers now expect a recession, signaling a positive shift in sentiment. Additionally, consumer inflation expectations for the year ahead dropped by half a percentage point to 6.5%, suggesting that inflation concerns may be subsiding. These shifts in consumer outlook suggest that trade tensions, particularly with China, have been a key factor in shaping Americans’ economic confidence.
Survey Timing and Trade Volatility
It’s important to note that about half of the survey responses were collected before Trump’s announcement that the U.S. would reduce tariffs on Chinese imports from 145% to 30% for the next 90 days. The survey period ended before Trump’s latest threat of 50% tariffs on European imports, which was later postponed, highlighting the volatile and unpredictable nature of U.S. trade policy. This constant back-and-forth has made it difficult for analysts to fully assess the long-term impact of tariffs on demand and consumer sentiment.
Shifting Economic Data Amid Tariff Uncertainty
The volatility in trade policy has spilled over into broader economic data. Earlier this year, businesses rushed to stockpile goods in anticipation of new tariffs, which has now led to a significant reversal in certain sectors. For example, factory orders fell by more than 6% in April after a nearly 8% surge the previous month, as companies adjusted their purchasing strategies to avoid tariffs. Additionally, non-defense capital goods orders, which include machinery and construction equipment, plunged by 19% in April, marking one of the steepest drops since the pandemic. This followed a 27% surge in March, highlighting the volatility in business activity as companies react to shifting tariff policies.